Enforcing corporate ethics

Commentary: Who will say 'wrong is wrong?'

MichaelCollins

SAN FRANCISCO (CBS.MW) -- How about this for a corporate ethics policy: "Lying, cheating and stealing are WRONG."

The expanded version might add that the corporation and its executives have a responsibility to do right by employees, shareholders, customers and society at large.

It may sound simplistic, but a policy like that, if followed, would have prevented the recent scandals at WorldCom
WCOME
Enron
ENRNQ
Andersen and so many others.

The problem hasn't been accounting or accountants. And with all due respect to my colleague Rex Nutting (see Capitol Report), I don't think the answer ultimately lies in Washington, although politicians would benefit from the same basic ethics policy and could lead by example. It hasn't really been a lack of regulation, although more of a negative incentive against cheating might have helped. Most of the regulations were there -- they just weren't followed or enforced.

So what could change accepted business ethics from "We'll do what we can get away with to make money" to "We'll do what's right as we make money?"

Richard Keady, the director of the Institute for Social Responsibility, Ethics and Education at San Jose State University, thinks there are two possible answers. The first is imitation of good business leaders. "If you have one guy who says, 'enough is enough' and he starts changing his behavior, others start to imitate him," Keady says.

The other incentive for change is the equivalent of the fear of death. "When does somebody become aware of death? When he sees someone else die," Keady says. "That changes a person's life, and I think the only way it's going to happen for corporate executives is when they see enough people going off to jail, that will motivate them to clean up their act. They may not like it, they may want to cheat, but they're smart enough to recognize they've got to follow the law."

Those of us in the media have a share in the responsibility for the ethics problem as well. We hold up as heroes those who make money, without often asking what rules they stretched to do it.

And as investors we also share some of the blame. For too long we rewarded corporations and executives for making their quarterly numbers without asking too many questions about how. Our fathers and grandfathers were unlikely to do business again with a man who cheated or cooked the books. But in recent years such an executive is rewarded with a golden parachute, lucrative consulting contracts and probably a speaking tour to tell others how he played the system.

"I don't think we're encouraging people to conspire to do what Enron did, but there is stuff on the very edge which is quite questionable," Keady says. "I think we've created a system that's going to take a long time and a lot of good will on the part of some people to change, so that it does benefit the public and not just the private concerns of corporate executives and their expensive salaries."

After the WorldCom news broke, Ian Shepherdson of High Frequency Economics said, "Learning that WorldCom was crooked was a bit like learning that something you bought a yard sale doesn't work: You aren't happy, but you always knew -- even if you tried to pretend that you didn't -- that the goods might already be damaged beyond repair."

That's sad, but true. We almost expect accounting tricks at some companies. We can start by expecting better.

"I think we need to protest, and I think people need to speak out and act against these things. But it's so massive now," Keady said. "The other thing is the power of the media is so massive, that is one of the controlling factors as to why people who are gangsters stay in power. The crime is not defined as a crime."

There have been many suggestions for re-building trust in public companies after the string of recent scandals. Some call for more regulation, others for better enforcement. Some companies are advertising in an attempt to build trust. There have been suggestions that business schools need to do a better job teaching ethics. But forget the business schools, send the executives back to kindergarten -- isn't that where we learn to play fair, and that lying, cheating and stealing are wrong?

Michael CollinsComments in The Gadfly don't necessarily represent the opinion of CBS.MarketWatch.

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